It’s a dream for every Indian to have a home of their own. Though with the rising prices, it has become a little difficult for many to buy their dream home. In this situation, the housing loan comes as a savior. Best Home loan is the most common means of becoming a homeowner. You can pay for a property in monthly installments and become the proud owner. However, getting approval on a housing loan is not a piece of cake. There are different kinds of charges involved which are way above the selling price of the property. Apart from processing fees and stamp duty costs, there are other kinds of charges involved that many people are not aware of.
Here is a list of different types of charges that you should know before applying for a home loan:
Loan processing fee:
This is a one-time charge levied by lenders to process your housing loan application. This is a non-refundable fee that is charged by the lender to cover all costs associated with the loan, even if it is not approved. Generally, this will be upto 0.50% of the loan amount for a salaried applicant & upto 1% for self-employed applicants. During the festive season and other occasions, you can also avail some extra benefits or discounts on the processing fee.
Administrative charges:
An administrative fee is charged in addition to the processing fee. This fee is taken to cover the cost of legal verification of the documents, property valuation, and other technicalities. Lender sends a team of experts to evaluate the property and accordingly, prepare a report. The report plays a huge part in determining the loan amount. The fee that the evaluation agency charges for the report is also passed on to the applicant. So, it’s always better to choose lenders who have fixed administrative costs or have an upper cap.
Conversion fee:
There are two kinds of home loan rates: fixed rate and floating rate. Lenders charge a specific amount to convert your fixed rate to a floating rate and vice versa. This amount is your conversion fee. If the rate of interest falls, you can change your interest rate by paying a conversion fee.To give you an example, HDFC Ltd offers the facility to switch from a fixed loan to a floating loan. The conversion fee is 0.5% of the principal outstanding at the time of conversion or Rs 50,000 plus taxes, whichever is lower. A conversion fee in a way is a fee you pay to reduce the rate of interest on your loan in the long run. The amount of the conversion fee is calculated based on the difference between the old interest rate and the new interest rate. The more the difference, the higher the conversion fee will be. This fee also affects your loan tenure at times. To avoid paying the conversion fee, many people decide to change their lender too when the rate of interest decreases. However, they will again have to pay the processing fee and some other additional charges.
Late payment charges:
As its name implies, this is a charge imposed by a lender if the borrower fails to make their equated monthly installment payment. When you apply for a housing loan, make sure you get full information about the late payment charges. In any event, if you fail to pay the EMI amount at the designated time, lender can charge you a fee as high as 2% of the overdue amount. In other words, you should avoid skipping or delaying EMI payments.
Prepayment charges:
You can choose to pre-close your mortgage by paying it off before its term ends. The reason can be any refinancing, saving interest, etc.Pre-payment will only make financial sense when you are saving some money, otherwise, it is better to invest the money somewhere else and wait until the loan matures.
Incidental charges:
Some lenders also ask borrowers to pay incidental charges that cover the risk of payment failure. Incidental charges and expenses are levied to cover costs, charges, and expenses incurred in the process of recovering dues from defaulting borrowers.
Cheque bounce charges:
When you make any kind of payment via cheque and the cheque bounces, you will have to face a penalty. A small amount of Rs 200-500 may be charged by your lender if cheque bounces.
